Fitch upgrades PLDT's credit rating

Fitch Ratings has upgraded Philippine Long Distance Telephone Co.'s (PLDT) long-term local-currency (LTLC) issuer default rating (IDR) to 'A-' from 'BBB+' with a stable outlook. “PLDT's LTLC IDR (which exceeds the Sovereign's 'BBB-' LTLC IDR by three notches) does not take into account foreign currency transfer and convertibility risk, and is more reflective of the company's standalone credit profile," Fitch said in a statement Friday. Fitch said PLDT's LTFC IDR continues to be constrained by the Philippine country ceiling of 'BBB-,' reflecting the country's foreign currency transfer and convertibility risk. “Any future movement in the Philippines' LTLC IDR will lead to a corresponding change in PLDT's LTLC IDR," the credit rating agency added. “The rating upgrade reflects Fitch's expectation that the PLDT-Digitel combined entity will have a significantly improved market position despite having broadly the same credit profile," the New York- and London-based Fitch noted. Last Oct. 26, PLDT announced that the National Telecommunications Commission on the same day approved the acquisition of a 51.55 percent ownership interest in the third largest telco — Digital Telecommunications Philippines Inc. (Digitel) — in an all-equity deal. PLDT shareholders approved the transaction and the issuance of common shares for the acquisition on June 14, 2011. A dominant operator “PLDT-Digitel will become a dominant operator, having about 70 percent and 66 percent of subscriber and revenue market shares, respectively, (versus PLDT's 53 percent and 56 percent in Q211). Also, PLDT will have a much larger spectrum (25MHz in 2100MHz band) compared to the second-largest operator, Globe Telecom (Globe, 'BB+'/Stable), which has only 10Mhz," Fitch Ratings said. According a PLDT statement on the Digitel deal, PLDT will issue 27.7 million new shares to acquire 3.3-billion Digitel common shares, representing a 51.55-percent stake, and zero-coupon bonds owned by Digitel parent JG Summit Holdings. Inc. The transaction has triggered a mandatory tender offer to the remaining minority shareholders of 48.45 percent who can opt to tender each Digitel share at P1.6033, or swap it in at a ratio of 1.567 Digitel shares for every PLDT share. Fitch said it does not expect the amount of minority shareholders' payment, if debt-funded, to materially affect PLDT's credit profile. As part of regulatory approval, PLDT has committed to divest 10MHz of spectrum in the 2100MHz band and to keep the popular 'Unlimited Tariff' packages alive in the market. PLDT will divest its subsidiary, Connectivity Unlimited Resource Enterprises, Inc. (CURE) which owns 10MHz of spectrum. CURE will be sold through competitive bidding by PLDT under NTC supervision, which should fetch PLDT a minimum bid price that would allow it to recover its investment in acquiring, developing and operating CURE, including the $10-million acquisition price for and P65 million annual spectrum users' fee. — VS, GMA News